Point West GR Ltd v Rita Bassi and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Floyd,Lord Justice Peter Jackson |
| Judgment Date | 24 June 2020 |
| Neutral Citation | [2020] EWCA Civ 795 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: C3/2019/2273 |
| Date | 24 June 2020 |
[2020] EWCA Civ 795
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)
Judge Martin Rodger QC (Deputy President) and Judge PD McCrea FRICS
LRX/31/2018
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lewison
Lord Justice Floyd
and
Lord Justice Peter Jackson
Case No: C3/2019/2273
Timothy Morshead QC and Jonathan Wills (instructed by Eversheds Sutherland (International) LLP) for the Appellant
Daniel Dovar (instructed by Wallace LLP) for the Respondents
Hearing date: 16 June 2020
Approved Judgment
The background to this appeal is a dispute about service charges; but the main issue is procedural. Its principal focus is the power of the First Tier Tribunal (“the FTT”) to review one of its decisions, following an application for permission to appeal to the Upper Tribunal (“the UT”). The immediate decision under appeal is that of the UT (Martin Rodger QC, Deputy President and PD McCrea FRICS). Their decision is at [2019] UKUT 137 (LC).
The dispute
The Point West Building (“the Building”) at 116 Cromwell Road, London SW7 is a large mixed residential and commercial development comprising 399 leasehold apartments together with parking spaces and approximately 20,000 sq metres of commercial space including a supermarket. Under the leases of the apartments the landlord is obliged to provide certain services and is entitled to receive a contribution towards its expenditure through an annual service charge payable by the leaseholders.
The service charge is calculated in accordance with the Fifth Schedule to each lease. Paragraph 1 (1) (a) (ii) of that schedule provides that if the landlord fulfils the duties normally carried out by a managing agent it is entitled to include a management fee in the total estate expenditure “not in excess of the sum reasonably and properly payable to an independent managing agent”. Paragraph 1 (1) (c) of the same schedule entitles the landlord to include an annual sum equivalent to the market rent of any accommodation owned by it and provided rent free to its own staff. These two items are clearly notional costs rather than actual costs that the landlord has paid. For the accounting periods in dispute this provision has been taken by the landlord to allow it to recoup a notional rent for its own premises in the Building which it uses as an estate manager's office (rather than as domestic accommodation for porters or other employees).
Until 4 July 2014 the head lessee of the complex was Point West London Ltd (“the old landlord”). As a result of a dispute with one of the lessees, the old landlord entered administration on 22 June 2012. Point West GR Ltd (“the new landlord”) acquired the head lease from the old landlord on 4 July 2014. Shortly afterwards the old landlord went into creditors' voluntary liquidation. The disputed service charges relate to the period between the old landlord's entry into administration and the acquisition of the head lease by the new landlord. The amount of the charge itself arose in the context of another dispute: this time over the administrators' fees and disbursements. The allegation was that the leases did not allow the administrators to charge a management fee because all day to day management of the Building was carried out on-site by staff employed by the old landlord and paid separately through the service charge.
That dispute was eventually settled. It was a term of the settlement that payment would be made from the service charge account to the liquidators of the old landlord of the sum of £363,000 which the new landlord would then seek to recover from the leaseholders through the service charge.
The amount of the service charge in dispute was £557,557. It was made up of three elements:
i) disbursements relating to additional professional fees for accountancy and surveying.
ii) an additional charge in respect of management to bring the total management fee up to 10% of the total service charge costs incurred, allowing for the management fees of £40,362.50 per quarter which had previously been levied. The additional management charge for 2012 was £24,871, for 2013 it was £59,398, and for 2014, £35,087.
iii) a notional rent for offices in the building used by staff employed by a former Landlord. Under this heading £68,908 was included in the restated accounts for 2012, £91,460 for 2013, and £46,356 for 2014.
The original hearing in the FTT
On 15 December 2015 the leaseholders applied to the FTT for a determination of their liability to pay service charges for the calendar years 2013, 2014 and 2015. On 18 January 2016 the same leaseholders issued a second application in respect of service charges payable on account for 2016. The relevant areas of dispute were that the leaseholders considered staff wages (including the wages of an employed manager) to be excessive; and the addition of management fees and a notional office rental on top of those wages to be additional costs which would not be charged by an external managing agent.
The jurisdiction of the FTT arises under section 27A of the Landlord and Tenant Act 1985 (“the 1985 Act”). That enables an application to be made for a determination “whether a service charge is payable” and, if it is “the amount which is payable”. The amount of a service charge payable is governed, in the first place, by the lease under which it is levied. If there is no contractual liability, then the charge is not payable. But the 1985 Act overlays the lessee's contractual liability by the imposition of a cap. That is expressed in section 19 (1) of the 1985 Act:
“Relevant costs shall be taken into account in determining the amount of a service charge payable for a period
(a) only to the extent that they are reasonably incurred, and
(b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;
and the amount payable shall be limited accordingly.”
The expression “relevant costs” are the costs or estimated costs to be incurred in connection with the matters for which a service charge is payable. Whether costs have been “reasonably incurred” requires the FTT to consider two questions:
i) Whether it was reasonable to incur any costs at all on the service charge item in question; and
ii) If it was, whether the amount actually incurred was a reasonable amount.
Although not a precise analogy, the FTT must consider both liability and quantum.
The hearing before the FTT occupied three days in July 2016. It heard evidence from a number of witnesses. In its decision of 15 August 2016 (“the original decision”) the FTT dealt with the disbursements in a number of places. It considered a redundancy payment made to a staff member and found at [36] that it was reasonable and payable. It then considered the fees charged by a Mr Nicholson, which the leaseholders said should have been included in the management fee. The FTT found at [39] that those fees were not covered by the management charge; and at [41] that they were reasonable and payable. At [65] the FTT recorded that the disbursements had not been challenged and allowed them in full. As the UT pointed out at [53] the FTT did not explicitly identify which “disbursements” had not been challenged. It seems, however, that in so far as disbursements had not already been dealt with in previous parts of the decision, they related to additional accountancy and surveying fees.
The FTT next considered the management fee charged. The landlord's argument, recorded by the FTT at [42], was not that it had actually paid the amount claimed; but that the management charges were “reasonable and value for money”. The FTT referred to the RICS Service Charge Residential Management Code and said that it was not mandatory to charge a fixed fee. It concluded at [49] that, having regard to the complexity of managing Point West, the management fees claimed were “within a reasonable range” and that “they were payable”. In the light of the way that the landlord put its case and the terms of the lease, it seems to me to be clear that the FTT understood that this was a charge as opposed to a cost.
The FTT dealt with the notional office rent at paragraphs [73] to [77]. It recorded the leaseholders' acceptance that, in principle, the service charge could include a charge for office space. The debate had concerned whether the occupation of office space by the company managing the building on behalf of the landlord (“PWMS”) was occupation by “staff” in the sense intended by clause 6(4)(f) of the lease. This entitled the landlord “… to employ … one or more caretakers porters [etc] … and in particular to provide accommodation either in the Building or elsewhere … and any other services (including the provision of uniforms and telephones) considered necessary by the Landlord for them whilst in the employ of the Landlord”. The FTT considered that the office used by PWMS fell within the meaning of this covenant and that the notional cost of providing it was a recoverable expense (the Fifth Schedule allowed the recovery of “an annual sum equivalent to the market rent” of accommodation provided rent free to those mentioned in clause 6(4)(f)). The evidence relating to the rental value of the office space had not been challenged so the FTT found that the notional rent was reasonable and payable.
Having considered the management fee and allowed it in full, the FTT went on to consider...
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